Economic contagion via NCov-2019

Hassnain Javed

MARCH 8, 2020

China accounts for almost 1/5 of global GDP. Naturally, there is growing concerns of the Coronavirus 2019 impact on the global economy. There is much research in process to find out the extent and duration of the damage. As, I have discussed in my previous articles China has set an ambitious 6 percent GDP growth target for 2020. However, the coronavirus will make it hard to reach the goal. The virus is expected to have a bigger impact than the SARS outbreak in 2003, which have so far killed 800 people worldwide and has shaved almost one person off China’s growth. When compared with the SARS crisis the economic impact from the corona virus outbreak will be sharper and deeper. By the time, China’s economy has grown four times bigger since then making up almost 18 percent of the global economy and it is not just at China’s problem.

China has grown faster than any major economy to become the world’s second biggest by GDP. Now, China plays key part to provide range of global supply chains. The outbreak will have a knock-on effect worldwide. Especially for those countries that are more reliant on China feeling even more of an impact. The world biggest smartphone chipmaker call come cautioned that the outbreak was a causing significant uncertainty over demand for smartphones as well as the supplies and needed to produce them.

The travel and tourism industry is also among the most vulnerable. Nearly six million people from China visited South Korea last year. However, now data shows that the country could lose a large number of those tourists. Despite, the current situation the major businesses across China will gradually resume operations. Some believe in a V-shaped impact like orange crisis in other words sharp decline in economic activities in China followed by rapid recovery and a total impact on China relatively contained. Therefore, impact on the world economy will also be contained. A rebound after short sharp economic shock is possible under certain circumstances. Major businesses and factories across China need to resume operation under the Chinese government’s systemic economic policies and containment measures. Most importantly, the spread of the virus needs to stop.

China the engine of global trade has stalled and that means slow going for the global economy

Economic contagion, the blow from the coronavirus outbreak could push Pakistan’s economy into recession. As it ripples around the world hitting Airlines,carmakers, tech firms, retail and tourism. How is a disease where 99 percent of the confirmed cases are in mainland China causing such global disarray at the risk? As already discussed China’s economy is big much indeed bigger than when SARS hit China in 2003. At that, time mainland China was the world’s sixth largest economy andit is now the second biggest with nearly 20% of global activity. Its share of global growth is even higher about a third. As China has grown so, have its imports and exports. It now accounts for more than a tenth of global trade so the first thing is that more people are affected by this virus outbreak than they were around SARS. Moreover, the policy initiative taken by the Chinese authorities are quite aggressive and they imply that the Chinese economy has been closed for a long time, which in itself will result in a contract to the economy.Furthermore, it is going to spill over to the rest of the world because China plays an important role both in terms of its size of the global economy and in its trade linked with other countries as it move up in global supply chains. Another important way China’s shutdown will affect the world is through tourism. China is the world’s largest tourist with a hundred and fifty million travelers heading abroad each year. The Chinese are big shoppers when they are overseas. They spend almost three times as much as the average visitor to the UK. Therefore, Burberry and other global luxury goods groups will feel the abrupt halt in Chinese travel. Nevertheless, tourist attractions will feel the change to the Shakespeare Birthplace. According to the recent international statisticsvisitor, numbers are down by 15% in contrast to last year.

However, the more unpredictable impact is through China’s role as a supplier of parts to the world. In cars, China accounted for just one percent of global auto parts exports in 2003 but now provides eight percent. Its role in consumer electronics and electrical components is much larger prompting warnings from companies like Apple and Samsung. Wuhan where the virus started makes more than half the world’s NAND flash products a type of memory used in PCs and laptops that is already causing problems according to one Technology Company. They are already shortages in solid-state disk there is quite a significant level of price rises that has already happened. I mean prices have risen in excess of 25 percent just really in the last four weeks and they are continuing to rise. Now, there is a lot of lockdown on volume purchases. In solid-state disk, as well some manufacturers in the supply chain are limiting the number that you can actually buy. As well, as try to spread the stock out across the supply chain.

In order to conclude, we can see that things are getting worse now. The UK is less reliant on China than big Asian economies but there is concern.Global governments have already been in touch with some of the big business groups asking for information from their members.They are already seeing problems from coronavirus and which parts of their supply chain could be vulnerable.

Even once the virus is brought under control the economic fallout may linger. The cuts to air and sea cargo could mean capacity shortages and higher prices as factories start up again. China the engine of global trade has stalled and that means slow going for the global economy.

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